Economics Honors Edgenuity: Public & Private Solutions, Lesson 8 Business Structures Economics Honors Edgenuity: Public & Private Solutions, Lesson 8

# 1 – Sole proprietorships Owned and run by one person 75% of US businesses are these Examples: Tax preparer, in-home child care business, independent contractor

Advantages Easy to start/stop Little gov’t oversight Owner keeps profits Few business taxes Decision-making by one person

Disadvantages Owner has unlimited liability Difficult to raise capital Sometimes hard to manage

# 2 – Partnerships Two or more owners Share risk, losses, profit 9% of US businesses are partnerships Examples: Law firms Doctors’ practices

Advantages Easy to start/stop Easier to manage Fewer business taxes Easier to raise capital More efficient than sole proprietorship

Disadvantages Can require owners to be liable for partners’ losses Difficult to manage disagreements Must be reorganized if one partner leaves

# 3 – Corporations Business organization created as a separate legal entity from its owners Have same rights and responsibilities as an individual Can enter into contracts, buy/sell property, sue and be sued Make up 20% of US businesses

Shareholders: Own corporations by buying stock in the company Stock may be owned by a few or by thousands of investors Public companies sell stock to the public Corporations use sale of stocks/bonds to raise capital

Advantages Limited liability for owners and stockholders Easy to raise capital Easy to transfer ownership Can have unlimited life, even if shareholders or owners leave

Disadvantages Can be more expensive to form Many state/federal regulations Individual owners have less say Shareholders must pay taxes on profits

# 4 – Franchises The franchisee: Franchiser supplies: Franchising involves sale of a business model to individual owners, who can sell a company’s product or services Franchiser supplies: Training A product supply Advertising and marketing A recognizable trademark The franchisee: Licenses the trademark Pays fees

Advantages Easier to start than starting from scratch Provides a proven idea, branding, marketing Provides support from the franchisor Creates an established relationship with suppliers

Disadvantages Can be expensive to start and own Includes restrictions created by franchisor Profits must be shared with franchisor

# 5 – Cooperatives Business operated collectively and jointly owned by a group Profits distributed between member-owners Board of directors makes decisions Members buy shares based on their needs

Advantages Reasonable cost for supplies and services Earnings shared between members Members pool their products to receive better sale prices Creates a democratic business

Disadvantages Requires financing from member-owners Those with more equity do not have more say than those with the least